Monday, October 24, 2005
Credit Card Use
| You Passed the US Citizenship Test |
 |
Enough of the advertisement lest I digress from my topic which is about the use of
I guess that trait came about when I was a kid and I would hear adult relatives talk about (gossip if you insist) other people who are mired in debt and how miserable their life playing hide and seek from creditors. Perchance I would see some of these people and look at their face. Then I imagine their face mirrors that of a miserable person and I don't want to be it. Thus my resolution never to be in debt. Live simply and below your means. Pay in cash!! Come to think of it I didn't even have a checking account.
As fate would have it I now reside in the land where credit card rules. You won't be able to rent or buy a house or car if you don't have credit history which is tied with your use of a credit card. So I had to "learn" how to use one to establish my credit history for future reference.
Applying for credit card is easy especially if you have a bank account. Credit card companies will even vie for your patronage. They will offer you incentives like cashback. They even have cards specifically for students to start them early on the road to indebtedness (or perdition). Learning how to use one wisely is where the problem lies. Credit card separates the prudent from the spendthrift. The restrained from the extravagant. The economiser from the squanderer. The happy person (present) from the miserable (future). The intelligent from the...? no, not necessarily so.
Credit card gives you the illusion that you have enough money to spend based on your credit limit. As long as you pay the minimum balance you're good to go to spend more. You tend to forget those fine print (in case you even bothered to read it) in your terms and conditions like accrued interest on accumulated payments due. I've read stories of people who graduated from college three or four years ago and are still paying for the beer and pizzas they splurged on using their cards. Hoohah for those college weekend binges.
Still I'm now a firm believer of using credit card instead of cash if you know how. Where else can you get $25.00 to $50.00 cashback for spending. If I paid in cash for my purchases I won't be earning points to get that cashback. But it takes discipline and restraint on your part to resist buying things everytime something catches your eye or spur of the moment decision to travel because you feel like it and charge it all on your beloved card(s--ouch!).
Here's my unsolicited two cents worth of tip in using credit cards.
1) Have a healthy fear of being in debt. Not just "fear" but a "healthy fear". You can't avoid being in debt (I realized that) especially when you need to take out a loan. But you must be discerning. Is it worth it? Is it a necessity? Do I have the resources to settle my obligations in its entirety. I guess I have to thank my adult relatives after all for all their talk about those mired in debt because that instilled the first lesson in me.
2) Treat your card as cash that you actually have on hand. Forget about your credit limit. How much is your take home pay? Budget your expenses based on that excluding (a must) savings. Then use your card to pay for your expenses. That way you earn points for cashback and you are able to pay your balance due in FULL NOT just the MINIMUM. You avoid accrued interest which is the bane of all those in debt.
3) Save part of your income. If you're planning to buy big ticket items save on it first. If you have about 50% of the total cost saved then you can purchase the item if it has a period of interest free payments. This will allow you to continue on saving for the full amount while utilizing your initial savings to pay the billing statement as they come without interest.
4) Limit the number of credit cards you have. Keep it to two or three tops. It will not only limit your spending but it will also make it easy for you to keep track of your expenses. If a better offer comes on a new credit card pay off one of your current cards and switch to the new one. But don't close the card that you paid off. Just don't use that card, better still cut the card. It has something to do with your credit history report if you keep on closing accounts.
5) Discipline your spending habits. Live below your means. It's simple, check out your vices and see what you can live without otherwise woe on you if you can't, you're already ADDICTED to it.
I can understand why some people don't like having credit cards. They'd rather pay in cash and I can empathise with them. Probably they were just able to get out of debt and they don't want to go through the same experience. They have a "fear" of being in debt. I admire them for how they discipline their spending. But if you can abide by my tips then you can take advantage of all the incentives that a credit card has to offer. You definitely stand to gain.
